More Secret Money Went to Goldman

Kept secret by the U.S. government until today, Goldman Sachs borrowed $15 billion from the U.S. Federal Reserve on December 9, 2008 to stay afloat.

That was the largest sum taken that day by a coterie of 19 favored Wall Street and foreign banks in a furtive $80 billion capital infusion to the banks that created the crisis.

Today’s astonishing disclosure, and the strenuous efforts of officials to keep it quiet for nearly three years, raises still more questions about the integrity of the government kingpins who called the shots during the financial crisis of 2008.

Especially compromised are Henry Paulson, Goldman’s former CEO who ran the U.S. Treasury at the time, and his chief lieutenant, Tim Geithner, who has run the U.S. Treasury since.

The duo’s most questionable deed was the unlawful seizure of American International Group in September 2008. After paying mere pennies on the dollar for the company, they then used it as a secret funnel to move more than $50 billion of government money to the same coterie of banks, with Goldman again the largest beneficiary.

The two government officials managed to keep that clandestine operation secret for months, until Congress and the press pried it out of them.

Today’s news reveals more of the same, sweetheart funding of favored banks, led by Goldman, in a deal kept hidden from public view, this time for nearly three years. Congress has repeatedly sought clear answers from Secretary Geithner about his role in the crisis and consistency has not been his hallmark.

3 Responses

So, I’m still trying to understand why this was not disclosed earlier. According to Bloomberg, quoting the Atlanta Fed, the official story seems to be that this was no different from regular open market repo operations and not 13(3) lending — but that seems odd. These were 28 day terms and also, invites the question of what the Sanders Amendment asked for — The language of the Sanders amendment is here: http://sanders.senate.gov/​imo/media/doc/Document2.pd​f.

The amendment lists the various programs and ST OMO was not on the list. . .there was a catch-all for 13(3), but if this doesn’t fall under that, then the Fed decided to be coy. . .

Which then makes one wonder whether the regular open market repo/monetary policy transactions with the primary dealers are disclosed (meaning dealers and rates identified) and how to tell the difference between emergency lending and business as usual.

The implications may be significant given the Dodd-Frank changes on emergency lending.